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Trade him
When I have this situation, I package the veteran up with two or three very minor prospects (2-3 blue star guys) in the "Trade" menu; I then shop him to each team; usually a couple will offer something in return; often one of their overpriced washed up dogs... but one who has a lower salary or shorter contract. Sometimes I just go into the other team's roster; find some 39 yr old 1-star catcher making $1.1 million and offer the above package; almost always works.
If you want to cheat, change the "AI Trading Preference" to "Heavily Favor Veterans"; you'll probably get a 5-star prospect back
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